sp14 camacho estis-green_hama _customer_acquisition_costs

HAMA Sales & Marketing Efficiency Study

Hospitality Asset Managers Association

kalibri LABS. Confidential & Proprietary Information

Agenda

HAMA Sales and Marketing EfficiencyStudy

Acquisition Costs—A Deeper Dive

– Frank Camacho, white paper author

Solutions in process

– Industry, Brand, Hotel


Booking Brands and Stay Brands


HAMA Sample P&L Database

468 hotels from 2009-2012Data elements– Total Sales and Marketing Spend– Commission Expense (retail only)– Total Revenue– Room Revenue–Number of rooms–Group/Transient split

“Same store”—340 hotels


Chain Scale

Hotel Chain Scale Number of Hotels in Sample

Luxury 69

Upper Upscale 120

Upscale 209

Upper Midscale 69

TOTAL 468


Management Type

Management Type Number of Hotels in Sample

Franchise/Mgt Company 295

Brand Managed 162

Owner Operated 11

TOTAL 468


Location Type

Location Type Number of Hotels in Sample

Urban 195

Suburban 145

Resort 46

Airport 41

Interstate/Highway 30

Small metro/town 11

TOTAL 468


Size of Property

Number of Guest Rooms

Number of Hotels in Sample

< 150 193

150-299 149

300-449 73

450-599 23

600+ 30

TOTAL 468


Segmentation

Dominant Business Type Number of Hotels in Sample

Transient 408

Group 60

TOTAL 468


Partial Chain Representation

Chain Number of Hotels in Sample

Chain Number of Hotels in Sample

Marriott 202 Fairmont 19

Hilton 92 Independent 13

Hyatt 36 Four Seasons 12

Starwood 28 Kimpton 11

IHG 23 Denihan 9


0%

5%

10%

15%

20%

25%

30%

35%

40%

2009 2010 2011 2012

RoomRevenueTotalRevenueTotal S&M

Commissions

Total AcqCosts

Commissions Rise at 2x the Rate of Revenue Growth(retail commissions only)


Contribution to Operating Expenses and Profit Ranges—NYC 2012

Cost Type Low Contribution High Contribution

Commissions Only

80% 90%

Commissions + Sales/Marketing

70% 80%

© 2013 Kalibri Labs

Source: Kalibri Labs—NYC Prototype test

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HAMA White Paper:

The Rising Costs of Customer Acquisition – Upper Upscale & Luxury

Segments

F Camacho Consulting

14

Topics

• Background

• Room Revenue and Acquisitions Costs – 2009-2012

• Sources of Cost Growth

• Fee examples

• Growth by Category

• Comparison to Franchised properties

• Growth Varying by Brand

• Recommendations

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Background and Approach

• During economic recovery costs typically rise at a slower pace than revenues – concerns this wasn’t happening

• Analyzed P&L for 6 properties in detail over a 4 year period

• Developed framework to examine costs of customer acquisition

• Started with 468 U.S. and Canadian properties in the Kalibri database representing over $7 billion in revenue

• Focused on 104 upper upscale and luxury, managed properties with brand affiliations

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Finding 1: Flow Through Was Not Improving -Customer Acquisition Costs Rose Almost 23%

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Acquisition Costs Can Be Driven Centrally or By Local Decisions

• Acquisition costs divided into five categories, two external and three internal:

• External costs:

– Brand allocations – including those for Brand marketing, advertising, promotions, national and global sales offices, and loyalty programs.

– Third party commissions – both transient/travel agent and group

• Internal/Property Costs:

– Local/property marketing and sales programs

– Local/property marketing and sales staffing and related expenses

– Other local expense including reservations

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External Fees Related to Customer Acquisition Vary in Type and Amount By Brand

Charge Categories Fairmont Four Seasons

Intercontinental Marriott Ritz Carlton

Westin

ReservationsBrand/CRO x x x x x x

Outside/GDS x (included above)

x x x x

MarketingMarketing Fee x x x x x x

Performance/Online Marketing

x x x x

Ad Co-op/Cluster some x

Loyalty Program

FT/Transient x x x x x

Group/TA x x x x x

SalesGSO/NSO (in Brand) (in Brand) x x x x

Cluster/Region x x

Referral Programs x x x

CommissionsTransient TA x x x x x x

Group x x x x x x

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Finding #2: External Costs Grew 54% Faster 37% for brand allocations and 34% for retail commissions

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Finding #3: Local Marketing & Sales Budgets were held down

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Franchised Properties Saw Even Greater Increases in Third Party Commissions

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Finding #4: Rising External Costs Further Tiltthe Balance of Spending

2009 Acquisition Costs: $348MM 2012 Acquisition Costs: $424MM

49%

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Finding #5: Total Acquisition & Retention Costs Vary Widely By Brand

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Third Party Commissions Account For Much of the Variance in Acquisition Costs

• Third parties can contribute to revenue growth

• However, don’t drive revenue increase as fast as costs growth

• Different brands approach them quite differently

• Three brands grew revenue faster than commission expense

25

Finding #6: For the top 10 Brands included in this study, Commission Growth ranged from 10% to 72%3 Brands Grew Revenue Faster than Commissions

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Conclusions

1. Customer acquisition costs should be a major discussion item between Owners and Brands.

2. If Brands become less able to deliver “uncommissioned” revenue, they have a lower economic value

3. While costs have been offset by reductions in local spending, owners shouldn’t allow local Sales and Marketing to be crippled

4. In new management agreements, customer acquisition costs must be clearly stated and ownership has the right to approve incremental fees

5. Tracking the costs of customer acquisition should be an ongoing focus for every property

6. Luxury and Upper Upscale segments were studied, but all segments should be concerned

Sales and Marketing Spend Declining in Efficiency


HAMA Study Metrics*

Net RevPAR

Revenue – (Commissions + Total Sales and Marketing)/available rooms

Net Sales and Marketing EfficiencyHow much net revenue is generated for every $1 spent in sales and marketing?

Revenue - Commissions Total Sales and Marketing

* ~500 hotels; P&L data only; retail commissions only


$8.79

$7.94

$8.31

$6.92

$8.83

$8.09 $8.08

$6.92

$8.85

$7.95$7.80

$6.90

$8.87

$7.79$7.64

$5.96

$-

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

Luxury UpperUpscale

Upscale UpperMidscale

2009

2010

2011

2012

Net Sales and Marketing Efficiency


Notable Highlights

Branded luxury hotels were more efficient in sales and marketing spend than the branded upper upscale

However, independent and small chains outperformed branded luxury hotels in sales/marketing efficiency

Luxury hotels were 11% better in S&M Efficiency than the Upper Upscale, but with a 100% premium in ADR and revPAR that was a surprisingly narrow margin; they were 18% more efficient in sales and marketing efficiency when total revenue was considered

Commissions in upscale hotels grew more quickly than other chain scales between 2009 and 2012 but it was a close contest

Group hotels held steady in S&M efficiency from 2009-12 and were 9% more efficient than transient hotels (based on total rev); transient were more 19% more efficient on rm rev; transient declined over time largely due to the steep rise in commissions.

Solutions: Industry, Brand and Hotel

Hospitality Asset Managers Association


Measure and Manage

Major brands have agreed to share data to create these metrics for brand, hotel and industry use

Change the metrics to evaluate hotel performance each month; if you want Net Revenue, then reward on Net Revenue

– Contribution to profit

– Net RevPAR

– Net Sales and Marketing Efficiency


Contribution by Channel

Commissions and Transaction FeesErode the Revenue that Flows Through to Profit

COPE: 85.7%© 2013 Kalibri Labs

HAMA Sales & Marketing Efficiency Study

Questions?

sp14 camacho estis-green_hama _customer_acquisition_costs

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